Stagflation Portfolio


A stagflation portfolio is one designed to prosper in recession or inflation.

We have been looking at the battle between inflation versus deflation.

Each day we see another sign one way or the other.

Day before yesterday really inflationary news in the New York Times when an article said:

WASHINGTON — President-elect Barack Obama on Tuesday braced Americans for the unparalleled prospect of “trillion-dollar deficits for years to come,” a stark assessment of the budgetary outlook that he said would force his administration to impose tighter fiscal discipline on the government.

Mr. Obama sought to distinguish between the need to run what is likely to be record-setting deficits for several years and the necessity to begin bringing them down markedly in subsequent years. Even as he prepares a stimulus plan that is expected to total nearly $800 billion in new spending and tax cuts over the next two years, he said he would make sure the money was wisely spent, and he pledged to work with Congress to enact spending controls and efficiency measures throughout the federal budget.

“We’re not going to be able to expect the American people to support this critical effort unless we take extraordinary steps to ensure that the investments are made wisely and managed well,” Mr. Obama said, speaking about the dire fiscal outlook after meeting with his economic team for a second straight day.

In his most explicit language on the subject since winning the election, Mr. Obama sought to reassure lawmakers and the financial markets that he was aware of the long-term dangers of running huge deficits and would take steps to limit and eventually reduce them.

Sadly this is the same old news we have been hearing from the US government for
decades. We have to spend just a bot more now…but we’ll bringing the spending down soon.

Sure.

This is ruining the US dollar and creating inflation in the US.

Yet today’s the news is deflationary.  The New York Times says:

Jobless Rate Jumps to 7.2%

The economy shed 524,000 nonfarm jobs in December, the Labor
Department reported; more than 11 million Americans are now
unemployed, the most in nearly 25 years. The unemployment
rate has now jumped 2.2 percentage points since April.

This is the battlea 14 trillion dollar economy how much can it deflate versus  a trillion a year…or more of spending based on debt that inflates.

We could see stagflation…inflation during a recession.

Whichever, inflation and a economic recovery or inflation and recession…I am betting on inflation as part of the tune.

We have been looking at my portfolio to see how I am adjusting to this belief and and why.  Yet we saw that my personal and liquid portfolios we mostly cash and bonds.

What’s up?   If I believe in  inflation why am I holding so much in cash and bonds?
Stocks, real estate and commodities are the best investments for inflation.

So let’s look at the whole picture.

Here is my total portfolio breakdown (these numbers are very rounded).

Cash
USD                                                                          14%
GBP                                                                            4%
Norwegian kroner                                                   1%
Swedish kroner                                                        1%

Shares
Bank of Florida Shares                                         0 .5%
Jyske Bank, Shares                                                0.5%
Turkey Equity Fund                                              0 .5%
European Equity Fund                                          1.0%

Bonds
Swedish Bond Fund                                              2%
European Bond Fond                                          4.5%
JI Danish Bond Fund                                             7%
ELF Aquitain  EUR 4.500% 23.03.2009         1.5%
Caisse D’Amort Dette  EUR 12.07.2009           1.5%
Rabobank NL    CAD 4.250% 2009                      1%

Emerging Bonds
Hungary Governm.    HUF 6.250%12.08.2009   1%
Hungary Governm.    HUF 6.750%12.02.2013     1%
Emerging Market Bond fund                                  2.5%
European Investment BK TRY Bond                     1.5%
Brazil    BRL                  12.500% 05.01.2016          1%
China    EUR                                                                1%

US Real Estate
Agricultural Land                                                    12%
Residential Property                                              10%
Commercial Property                                             21%

Ecuador Real Estate
Ecuador Andean residential                                   2%
Ecuador Coastal                                                        5%
Ecuador Agricultural                                                2%
The heavy cash and bond position provide me with cash to grow my business, carry me through slumps if they arise and jump into opportunity. They saved me from getting clobbered in 2008.

My big inflationary bets are in real estate and in my own business.  I am increasing my Ecuador real estate postion as this fights inflation and helps my business.

This is the three phase model that our site recommends again and again.

We’ll look more about the whys of this portfolio tomorrow and asnwer your questions. please ask them!  See more on three phase investing

Jyske Global Asset managers by the way agree with my scenario that we may not see a qucik economic recvovery. their latest update says:

The first week in the new year started with a “2 month” high on the Dow Jones, with the index trading slightly above the 9000 level. An overall optimism took charge and stocks rallied worldwide with the Brazil Bovespa index up almost 13% and the Danish OMX Copenhagen 20 Index up 11,25% year to date. Investors started buying as indicators suggested that the intense fear caused by the credit crunch slowly is subsiding. The liquidity in the corporate bond market has improved and led to a narrowing of the bid/offer spread which had a positive effect on JGAMs managed portfolios.

Throughout the week financial markets continued with the positive sentiment despite negative statistics from the developed economies. Oil prices rose briefly above $50 mid week due to falling production only to finish the week around USD 40.

Today’s numbers showed a rise in the US unemployment rate from 7% to 7,2% making a stimulus package as important as ever.

Despite the positive start of the year, JGAM remains cautious as the financial markets are still volatile and the economic outlook is pointing to a prolonged recession.

Until next message good global investing.

Gary

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